Investment Valuation in India

Despite efficient markets which provide normal returns in the long run, active fund managers and capital market participants such as investors and traders often seek abnormal returns. Given the large pool of securities, market often 'misprices' some securities which provide opportunities to these fund managers to generate abnormal returns. This abnormal return is known as Alpha Return. The amount by which the investment is mispriced by the market becomes part of the total return expected by the manager over the holding period of investment.  We call it ex-ante Alpha and is given by: ex-Ante Alpha = Expected Return - Required Return Note that we use various models to calculate the Required return such as Capital Asset Pricing Model (CAPM) ans represents a fair return expected on similar assets with similar risks. Example: Now Let's see how can we calculate the Expected Return. For example, if an Analyst believes that a security which is currently p...